Chapter 7

Production
Production Management
Management

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 Production Management
Learning Objectives:
• Identify the key resources used for production
• Identify the factors that affect the plant site
decision
• Describe how various factors affect the design
and layout decision
• Describe the key tasks that are involved in
production control

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Resources
Resources Used
Used for
for Production
Production Process
Process
Production process: it identifies mixture of resources
allocated for production, the assignment of tasks, and the
sequence of task.
Thus firms need efficiency production management: the
management of a process in which resources (employees
and machinery) are used to produce products and
services.

Major resources:
• Human resources
• Materials
• Other resources

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• HR (Human Resources): Companies must identify the
type of employees needed.
• For example, will skilled or unskilled labor be necessary
for production? Will more labor be required, or more
materials? In other words, is production labor intensive
(need more labor than material – service organization)?

• Materials: The materials used in production are

converted, using human resources, into a final product.
• For example, tire manufacturers rely on rubber,
automobile manufacturers rely on steel and book
publishers rely on paper. Service firms, such as travel
agencies for example, do not rely as much on materials
because they do not engage in manufacturing.
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• Other Materials: Most forms of production will require a
building or plant.
• For example, manufacturers use factories while service
firms use offices. Machinery and equipment of various
sorts are commonly needed for both factory and office
locations.
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Two ways to combine resources together (to achieve lower
cost)
• Work stations
– An area in which one or more employees are
assigned a specific task
• Assembly line
– Sequence of work stations in which each work station
is designed to cover specific phases of the production
process.

– The production of a product may require several work

station, with each work station using employees,
machinery and materials.
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 Selecting a Production Site

Factors:
Cost of
Workplace
Space

Cost of Tax
Labor Incentives

Access to Supply of
Source of
Transpor- Labor
Demand
tation
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• Why site is important? Location can significantly affect
the cost of production . They can be categorized
according to Cost, Access and Sources
• Cost - Cost of Workplace space: The cost of
purchasing or renting space can vary significantly among
locations.
• For example, many companies located in the
northeastern states (where office rental rates are
generally high) have relocated to the South during the
last 10 years, where office rental rates are much lower.
• Cost of labor: The cost of hiring employees also varies
greatly among locations.
For example, due to the high cost of human resources,
some firms have relocated from California to the South.
• Sources - Source of demand: A company may choose
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• Access - Access to tax incentives: Some local
governments may grant tax credits to attract companies
to their area.

• Access to transportation: Some firms may choose site

locations that give access to main sources of
transportation, as they might sell their products easily
throughout the countries.
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• Sources - Source of demand: A company may choose
to locate near to where it sells its products.
• For example, transportation costs and servicing costs
can be overcome by moving closer to your customers.
• Source of a supply of labor: A company may be in an
industry that requires specialized types of labor. If this is
the case, they may need to locate where there is an
abundance of workers with the required skills.
• For example, many high-tech firms will locate near major
high-tech research universities so they can tap into a
steady supply of qualified prospective employees.
 Selecting Design and Layout
• Design: the size and structure of the plant.
• Layout: arrangement of the machinery and equipment
within the factory or office.(utilize)

• Important because it will directly affect operating

expenses – cost of rent, machinery and equipment.

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 Production Control
Stages in production control:
1. Purchasing materials
2. Inventory control
3. Routing
4. Scheduling
5. Quality control

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Selecting Design and Layout

Factors affecting design and layout

Site Production
Characteristics Process

Product
Line
Desired
Flexible Production
Manufacturing Capacity

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1. Site Characteristics: design and layout decisions are
dependent upon some characteristics of the site.
• For example, if the site is in an area with high land costs,
a high-rise building may be designed so that less land
will be needed.
2. Production Process: Design and layout may also be
determined based on the type of production process to
be used.
• For example: if an assembly line is to be used, all tasks
included in this operation should be in the same general
area.
• Fixed position layout and flexible manufacturing.
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3. Product line
• Most firm produce more than one product/service at
their site. Narrow product line focus on producing one
or a few product, broad product line for producing more
products.

4. Desired production capacity

• This is planning for the maximum production level
possible. Most firms attempt to plan for growth by
allowing flexibility to increase the production capacity
over time, otherwise they will be forced to find a new
location when demand exceeds their production
capacity.
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• Hotelling (just in time office): Providing an office with a

desk, a computer, and a telephone for any employee
who normally works at home but needs to use work
space at the firm.
• For example, a firm may achieve greater production
capacity without changing its design and layout if
employees can do some or all of their work at home.
This may be especially appropriate for salespeople who
travel frequently and generally work from a home office.
 Production Control
• Production control involve the following:
1. Purchasing material
2. Inventory control
3. Routing
4. Scheduling
5. Quality control
 Purchasing
Purchasing: Perform the following tasks, select a supplier,
obtain volume discounts (if possible), and the determine
whether or not to delegate some production tasks to
suppliers.
• When selecting a supplier firms must consider many
factors. For example, a company should look at price,
speed, quality, servicing, and credit availability.
• Volume discount: Companies that purchase large
quantities of materials from a supplier may obtain a
discounted price on supplies.
• Outsourcing

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 Production Control
Inventory control: process of managing
inventory at a level that minimizes costs.
This requires control of:
• Materials inventory
• Work-in-process inventory
• Finished goods inventory

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 Production Control: Inventory
Control of materials inventory:
• Carrying costs
– Costs of maintaining inventories.
• Order costs
• Just-in-time (JIT) system
– Reduces inventory to a minimum by frequent
ordering of materials.
• Materials requirements planning (MRP)
– Ensures materials are available when
needed.
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 Production Control: Routing
Routing: sequence of tasks necessary to
complete the production of a product.
Example: Bicycle production

1. Materials for
bike frame.
2. Assembling
wheels.
3. Packaging
frames &
wheels.
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Production Control: Scheduling
Scheduling: act of setting time periods for
each task in the production process.
Techniques used in scheduling:
• Gantt chart
– Expected timing for each task in the process
• PERT chart
– Schedules tasks to minimize delays in the
process.

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 Gantt Chart
Jan. Feb. March April May
Order materials

Materials arrive

Production

Product 1

Product 2

Product 3

Distribution: all
products

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 Production Control: Quality
Control
Quality control: process of determining
whether the quality of a product meets the
desired quality level.

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